SFO unable to confiscate £146m Nadir took from Polly Peck

'Tainted' Tory party donations were never examined

Asil Nadir was jailed for 10 years in August for stealing millions of pounds from the firm Polly Peck. The stubs of six cheques totalling £365,000 made out to the Conservative Industrial Fund were discovered during raids on his Mayfair address in 1993. Photograph: Carl Court/AFP/Getty Images

This article has been rewritten and corrected to reflect further information from the SFO

The Serious Fraud Office has said it is unable to pursue the Conservative party for the return of cheques totalling £365,000 allegedly stolen from Polly Peck by the fraudster Asil Nadir and paid into party coffers more than 22 years ago.

In August Nadir was convicted on 10 "specimen counts" of theft relating to £29m stolen in the late 1980s from the then FTSE 100 company he ran. But the SFO has told the court it believes the true sum he stole was at least £146m – even before considering evidence relating to Tory donations.

Today the SFO has powers which allow it to hunt down and confiscate proceeds from criminal activity beyond the sums for which a conviction was secured. These include powers to seek the return of any tainted gifts. However such powers do not apply in the case of Nadir as the relevant legislation became active only in 1995 – five years after Polly Peck failed.

In court filings obtained by the Guardian, investigators said "careful consideration" had been given to whether they should attempt to trace what remains of the £29m – equivalent to almost £60m today – Nadir is convicted of stealing. However, the SFO concluded that the cost to the taxpayer of such a confiscation action would be too high and the prospect of substantial recoveries too low.

Instead, prosecutors have sought a compensation application which requires Nadir himself to give an account of his ability to return the £60m. Nadir has told the court he is penniless and that the luxury lifestyle he had enjoyed up to his conviction had been at the generosity of friends. It is now up to the judge to decide if he accepts Nadir's account of his financial position.

Polly Peck administrators and Nadir's trustee in bankruptcy have long held that donations to the Conservative party – equivalent to about £700,000 today – amounted to illegal transfers from a NatWest bank account in Jersey held in the name of a Polly Peck subsidiary. The same account featured during Nadir's trial, during which it was said he had repeatedly used it to plunder the FTSE 100 firm's funds for his own ends in the late 1980s.

The stubs of six cheques totalling £365,000, made out to the Conservative Industrial Fund, had been discovered during raids on Nadir's Mayfair address in 1993 conducted by the Metropolitan police fraud squad on behalf of those overseeing his bankruptcy. The payments had not been authorised by the Polly Peck board, according to administrators.

The trial of Nadir, who is now serving a 10-year jail sentence, had been delayed almost 20 years after he fled Britain in 1993, living for many years as a fugitive in Turkish-occupied northern Cyprus. He returned to the UK to face justice in 2010.

The Conservative party has faced repeated calls over the years to return tainted donations, but has resisted. "Donations were received from Polly Peck companies more than 22 years ago," a spokesman said after Nadir's conviction in August. "These were accepted in good faith from what was then considered to be a leading British company."

Later that week, however, Lord McAlpine, who had been party treasurer at the time the funds were given, broke ranks and insisted the funds were "tainted money" and "shames the Conservatives if they hang on to it".

SFO investigators have told the court the millions stolen from Polly Peck helped to fund Nadir's extravagant Mayfair lifestyle as well as allowing him to lavish generous gifts on friends and relatives.

According to administrators and Nadir's trustee in bankruptcy, among the funds transferred without the knowledge of others at Polly Peck were cheques written to the Conservative party between 1985 and 1990.

In 1997 the late Lord Harris of Greenwich told the House of Lords there was evidence the funds were stolen and called for them to be returned. The Labour peer said that the stubs of six cheques totalling £365,000 had been discovered during raids on a Nadir property in 1993.

The cheques were from the NatWest Jersey account of Unipac, Polly Peck's Cypriot subsidiary. These facts were set out in the late 1990s in a letter to Conservative Central Office from administrators from Touche Ross, now part of Deloitte.

The letter said: "The investigations confirm that the monies donated by PPI [Polly Peck International] were paid on the instructions of Mr Nadir acting without the authority of the board of PPI. It is the contention of the administrator that Mr Nadir is liable to repay the sums concerned as a result of his fraud and/or breach of fiduciary duty and/or malfeasance as a director."

Kevin Hellard, Nadir's trustee in bankruptcy has written to the Conservative party following the former Polly Peck boss's conviction, reminding officials of his view that the money must be returned. Hellard has not received a response and is believed to be considering bringing a civil lawsuit. Even though Nadir was discharged from bankruptcy in June, Hellard can still pursue assets held before that date.

Before he fled the UK, Nadir, who had been declared insolvent, had become notorious for frustrating the efforts of his bankruptcy trustees. On one occasion some months before he fled, relations had reached such a low point that those conducting a raid on his then home in Eaton Square, Belgravia removed an expensive watch from his wrist.

Shortly afterwards, as a birthday present, the then Conservative Northern Ireland minister Michael Mates gave him a replacement watch bearing the inscription "Don't let the buggers get you down"

Nadir is due to hear tomorrow whether Mr Justice Holroyde orders him to repay limited funds stolen from Polly Peck or whether he accepts the former Polly Peck boss's claims that he is broke.

• This footnote was added on 20 December 2012. This article replaces a previous version which wrongly stated that the SFO had "decided against" pursuing the Conservative party for return of funds allegedly stolen from the Polly Peck group by Asil Nadir. In fact, powers to confiscate additional proceeds of crime, beyond those for which a defendant is convicted, did not become available to the SFO until after the date of the offences for which Nadir was found guilty.

The SFO has asked the Guardian to clarify it has never looked into allegations of fraud concerning payments from Polly Peck companies to the Conservative party. It notes those allegations stemmed from a Metropolitan police fraud squad raid on Nadir's home, conducted in 1993 on behalf of his trustee in bankruptcy (not by the SFO, as the original article stated). This was a month before Nadir fled Britain. At that time Nadir was already facing more than 70 counts and the SFO was under pressure from the court to slim down the indictment to a more manageable size. As a consequence, even if the SFO had been aware of cheques to the Conservative party in 1993 – and assuming there was sufficient evidence of theft – prosecutors would not have been likely to add a count to the indictment.